Experts Document That Public Pensions Are Weathering the Financial
Crisis

Congressional testimony faults research of public pension critics
as distorted, misleading; new CEPR study agrees that state and local
pension fund shortfalls are “seriously misrepresented” and finds that
most appear “easily manageable”

February 14, 2011 04:00 PM Eastern Standard Time

WASHINGTON--(BUSINESS WIRE)--The following is a statement issued by the National Council on Teacher
Retirement:

Keith Brainard, Research Director of the National Association of State
Retirement Administrators (NASRA), today told the U.S. House of
Representative’s Judiciary Committee that state and local government
pensions are weathering the financial crisis, making measured changes to
ensure long-term sustainability, and do not require Federal assistance.
Mr. Brainard said that many public pension critics lack sound knowledge
and understanding of how public pensions work, or rely on methods and
assumptions that are “inappropriate and inapplicable” to the way these
plans operate.

Mr. Brainard, who was appearing before the Judiciary Committee’s
Subcommittee on Courts, Commercial and Administrative Law, expressed
particular concern with research conducted by certain academics.

They promote confusion, according to Brainard, by mixing apples with
oranges. For example, one such report compares, for many states, local
governments’ unfunded pension liabilities with the tax effort of only
the state. However, local governments are also responsible for funding
pension liabilities, and excluding local sources of revenue “produces a
distorted and misleading measure,” said Brainard. “This is akin to
measuring the mortgage capacity of a working couple, yet considering the
income of only one of them,” he warned.

Pension funds hold $2.8 trillion in trust from which they pay benefits,
which is roughly 14 times the amount they distributed in benefits last
year, according to Mr. Brainard. “Using even conservative estimates,
pension funds representing the vast majority of public employees will be
able to continue to pay benefits for decades, if not into perpetuity,”
he stressed.

Furthermore, the percentage of all state and local government spending
on pensions has hovered around three percent during the last decade. The
impact of the financial crisis will likely require spending to increase
somewhat, Brainard said, but the most recent studies find that the share
of state and local budgets dedicated to pension contributions would need
to rise to only about five percent on average. “The assertion that
public employee pensions are contributing in a meaningful way to state
insolvency is simply not supported by the facts,” Brainard pointed out.

Mr. Brainard’s conclusion was echoed in a report, also released today,
by the Center for Economic and Policy Research (CEPR). Their paper, “The
Origins and Severity of the Public Pension Crisis” by Dean Baker, an
economist and Co-Director of the Center, finds that “The shortfalls
facing most state and local pension funds have been seriously
misrepresented in public debates,” and that the size of the projected
state and local government shortfalls, measured as a share of future
gross state products, appears manageable.

Mr. Baker says that the total shortfall for most state and local pension
funds is less than 0.2 percent of projected gross state product over the
next 30 years for most states. “Even in the cases of the states with the
largest shortfalls, the gap is less than 0.5 percent of projected state
product,” he concludes.

“Mr. Brainard’s testimony provides a careful review of the operations
and funding of public pensions, their share of the overall budget
picture at the state and local level, and the steps state and local
governments are taking to bring their pension plans into long-term
solvency,” said Jim Mosman, NCTR’s Executive Director. “His testimony
and that of other experts underscores the fact that, despite the
hyperbole of certain academics, state and local pensions are not about
to run out of money in a few years, nor are they the cause for state and
local governments’ current financial difficulties,” Mosman said.

The National Council on Teacher Retirement (NCTR) membership includes
69 state, territorial and local pension systems, serving more than 18
million active and retired teachers, non- teaching personnel, and other
public employees, with combined assets of more than $2 trillion in their
trust funds.

Contacts

National Council on Teacher Retirement (NCTR)Jim Mosman,
Executive Director, 916-394-2075

Release Summary

Congressional testimony faults research of Joshua Rauh as distorted, misleading. New CEPR study agrees that public pension shortfalls are seriously misrepresented and most are easily manageable.

Contacts

National Council on Teacher Retirement (NCTR)Jim Mosman,
Executive Director, 916-394-2075